Even if you’re not the biggest football fan, if it’s late in the game and the team with the ball is behind by a touchdown or more, you know what both teams are going to do. While the offensive side will send all available receivers downfield, the defense will be in its prevent package. And that’s how many felt about the Federal Reserve’s monetary policy strategy, which also changes the game for stocks to buy.
According to InvestorPlace financial news writer Samuel O’Brient, “the economic projections issued by the Fed include three rate increases that can be expected throughout 2022. Additionally, as the economy recovers, rates will likely increase along with it, rising t0 2.1% by the end of 2024. That’s from the current target range of 0% to 0.25%.” Given the latest market signals, it’s time for investors to seriously assess their stocks to buy.
At first, when the central bank issued its statement in the afternoon of Dec. 15, the major indices enjoyed a very positive session. Perusing through various opinions, it appears the consensus was that investors appreciated the certainty of the Fed’s decision.
Well, that optimism may have been premature. While no single session is the be-all, end-all for market trajectory, the indices flashed red on the following session. The S&P 500 index dropped almost 1% whereas the Nasdaq took the heaviest beating, suffering a 2.5% loss. Again, it’s not the most helpful framework to overreact to one event. Still, it may be a warning to reconsider the posture of your stocks to buy.
Despite all the news about inflation, it’s also possible we could suffer deflation. I’ve been mentioning for quite a while that money velocity has sunk to multi-decade lows, possibly near all-time lows. In other words, the Fed could be making the wrong decision. Therefore, it pays to consider relatively safe stocks to buy.
- Progressive (NYSE:PGR)
- Charles Schwab (NYSE:SCHW)
- Equifax (NYSE:EFX)
- Extra Space Storage (NYSE:EXR)
- O’Reilly Automotive (NASDAQ:ORLY)
- NextEra Energy (NYSE:NEE)
- Chevron (NYSE:CVX)
You might be asking, why deflation? It’s possible — though not guaranteed — that most of this inflation stems from a combination of supply chain woes and backlogged demand gushing through during 2021. Once these factors subside, we could see a return to normal valuations, perhaps even sharply lower prices from a supply glut. Thus, it also pays to be flexible with your stocks to buy.
Stocks to Buy Now: Progressive (PGR)
Although its fictional salesperson Flo added much-needed fun to a rather boring industry, Progressive as an investment remains rather unexciting. If there was an antithesis to the meme-trade phenomenon, PGR might fit the bill. However, over the trailing month, PGR has been doing some un-PGR-like things; namely, posting a double-digit gain over a condensed frame.
At almost 14% up, the insurance provider suddenly looks rather appealing. Not only that, but across the trailing five days, shares are up nearly 6%, making PGR one of the underappreciated stocks to buy. However, with the Fed changing its tune that inflation is merely transitory, its anticipated interest rate hikes should make Progressive a ticker to put on the radar.
Generally speaking, insurance-related stocks to buy feature a direct linear relationship, meaning that as one metric moves higher, so too does the other. Of course, you don’t want to depend too heavily on correlations, as they can always break — the coronavirus pandemic is an example of this. Still, it’s worth considering PGR as a hedge against the presently flailing tech names.
Charles Schwab (SCHW)
As a rule of thumb, investors anticipating a higher-interest-rate environment should consider the financial sector. On paper, as rates rise, the profitability margin for the loans that financial institutions make to their clients should also rise, all other things being equal. Well, the Federal Reserve Bank of St. Louis has a few words for you:
“We tend to think that banks prefer high interest rates, and certainly their revenues are likely higher when interest rates on loans and other investments are higher. However, banks must fund their investments, and bank funding costs are also generally higher when market rates are high.”
Therefore, the adage that higher rates support financial institutions might not hold up, at least not cleanly. So, why mention a firm like Charles Schwab on this list of stocks to buy? While its banking business may be questionable in terms of positive impact from the Fed’s decision, its investment advisory division may experience a boom.
Let’s face it: with Wall Street initially suffering from the meme-stock craze, many folks may have shifted their portfolios to risk-on assets. Now they really need guidance, which bolsters SCHW.
Stocks to Buy Now: Equifax (EFX)
With all that has transpired, you might not remember the controversy surrounding Equifax. For a refresher, here’s what I wrote back in 2017:
“According to the [credit agency’s disclosure], 143 million people had their personal information stolen, which included critical data such as social security numbers and birth dates. Most of those impacted were U.S. citizens and residents, although U.K. and Canadian customers may have also been compromised.”
At the same time, I headlined that the Equifax breach was horrendous at the time but will be forgiven tomorrow. While that may not have played out literally, I believe my broader read on American society panned out correctly. That means you may have to plug your nose a bit when adding EFX to your stocks to buy, but its intrigue factor may help overcome your (proper) moral outrage.
No matter what you think about the Fed and its decision, it’s probably going to move ahead with its strategy. This dynamic may create a counterintuitive trend, whereby demand for Equifax’s services may rise. After all, this may be the last chance for borrowers to secure historically low rates.
Extra Space Storage (EXR)
Well before anyone aside from epidemiologists concerned themselves with coronaviruses, great social changes were underway. Indeed, you can make the argument that the pandemic didn’t change anything, it merely accelerated ongoing developments. One of these is the massive downsizing movement among the baby boomer generation.
With fewer obligations in their later years, a massive house doesn’t make sense for many folks. But there’s a problem, per the Wall Street Journal. “As baby boomers age, many are planning to downsize into smaller homes. But preparing to live in a smaller space brings up a challenge: how to get rid of all the stuff you’ve accumulated through the years.”
That’s where Extra Space Storage takes center stage. As a provider of self-storage sites, it offers a ready-made solution for boomers who may not want to jettison everything. Certainly, business has been good, with EXR gaining over 87% on a year-to-date basis.
Moving forward, Extra Space can still perform well, with would-be homebuyers possibly downsizing themselves to save up for a competitive housing market. With higher rates possibly deflating some of the inflated prices, EXR makes for an intriguing case among stocks to buy.
Stocks to Buy Now: O’Reilly Automotive (ORLY)
While lower interest rates might deflate some sectors’ inflationary bubble, I’m just not seeing the used-car market suffering a catastrophic decline. Based on when the global supply chain crisis eases up, we could see even higher prices for all vehicles, not just secondhand ones, in 2022.
Yes, it’s an absurd talking point but remember, people claimed that buying a used vehicle could be a bad idea earlier this year. Guess what? The folks that really needed a new vehicle because, say, their primary broke down, may have taken this advice to heart, only to be brutalized months later.
Further, if a report from Consumer Affairs is accurate, used car prices will continue to rise. It’s not an unimaginable prospect because, aside from supply chain issues, the semiconductors that go into vehicles (combustion or otherwise) are of the lower-margin variety. So even the chipmaking industry isn’t exactly thrilled to re-serve increased demand from auto manufacturers.
Therefore, I’m going to put two and two together and hypothesize O’Reilly Automotive as an excellent idea for stocks to buy. There’s a certain point where enough is enough. ORLY can help bridge gaps until prices finally normalize.
NextEra Energy (NEE)
Although I’m sure the Fed analyzed volumes of economic data to make its policy decisions for 2022 and beyond, it wouldn’t surprise me if the decision to raise interest rates happened to be influenced in some small way by politics. Obviously, the political structure in the U.S. enables the president to have significant influence over future monetary policy.
What’s more, the inflation that we’ve incurred has hit the American people the hardest through common points of purchase like gasoline and food. Therefore, it doesn’t matter whether the inflation stems from supply chain woes or dovish monetary policy. If the voters are hurting, those in power presently will absorb the blame. It’s just human nature.
But one area where President Joe Biden’s administration likely will not budge is in its clean energy initiatives. Even if it doesn’t ultimately achieve net-zero emissions by 2050, the point is that the White House looks like it’s doing something positive for the environment. Therefore, NextEra Energy should be on your radar of stocks to buy.
As an added bonus, NEE is essentially permanently relevant. Since utilities are crucial to modern economies, NextEra is among the more fundamentally sound companies.
Stocks to Buy Now: Chevron (CVX)
Transitioning smoothly from talking about clean energy to fossil fuels is pretty much an impossible segue so I won’t even bother beautifying my words when it comes to oil firm Chevron. Instead, I’m just going to get straight to it. While green power is enormously relevant and will enjoy support based on political and social paradigm shifts, the overriding reality remains that the world is dependent on fossil fuels.
According to Jefferies analyst Christopher Wood, in 2020, “84% of the world’s energy demand was met by fossil fuels.” Further, once the global economy fully recovers from the pandemic — a not unrealistic hypothesis considering that the omicron variant might not induce severe symptoms — more people will consume fossil fuels.
Therefore, rising rates might not do anything about the prices. Because oil is so crucial to modern economies right now (as opposed to decades from now), consumers will almost pay any price. And let’s face it, after the devastation that OPEC incurred last year, it’s not like they’re in a hurry to open the spigot.
While a counterintuitive idea among stocks to buy, CVX may be relevant — perhaps incredibly so in 2022 and beyond.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.